FRANCHISE AGREEMENT REVIEW AUSTRALIA

Costs and Fees

Buying a franchise is not cheap, there is usually an up front franchise fee on top of the cost of the premises, equipment and inventory.

You need to be aware of the ongoing fees. In addition to the initial franchise fees, ongoing fees are payable by you to the franchisor.

You also need to be aware that some franchisors will require you to refurbish franchisee stores to keep up with a changing image or theme. These possible refurbishments can cost in excess of $150,000.00.

Lack of Independence

If you're considering purchasing a franchise, it's important to understand that there will be specific controls and limitations set by the franchisor. These can cover a range of critical areas such as products, pricing, employees, policies, territory, marketing, and work hours. Essentially, you won't have complete freedom to run the business as you see fit. Additionally, if you plan to sell or transfer the franchise later on, be aware that there may be restrictions or obligations in place. 

Guilt by Association

If the franchisor or other franchises associated with the franchise system receive unfavorable press or have a negative public perception, it could have a negative impact on your business. Though there are many commendable franchisors in Australia, some franchises may not be well-established or effectively managed. As such, it is crucial to conduct in-depth research on the franchisor and only engage in franchise systems with a proven and reputable track record in the industry.

Limited Growth Potential

When it comes to franchised ventures, growth potential may not be as unlimited as in standalone businesses. Franchisors typically set specific territories for operation, with strict penalties for breaching those boundaries.

Restrictive Franchise Agreements

Franchise agreements heavily favour the franchisor and can result in severe penalties if certain clauses are breached. This may include termination of the franchise agreement and monetary compensation sought by the franchisor.

Regardless of the franchise's reputation, seeking independent legal advice is imperative before entering into any agreement.

In addition to a franchise agreement, you should also receive an information statement, a disclosure document, a copy of the Franchising Code of Conduct, leasing information and other relevant documents.

For more information about the documents that you should receive from the Franchisor, read our article Documents to be Provided to a Franchisee before they enter into a Franchise Agreement.

Yes, in our experience franchisors have become more willing to negotiate the terms and obligations contained in a franchise agreement.

Franchisors are particularly willing to negotiate the terms of a franchise agreement in circumstances where those terms may be harsh, unreasonable, or unfair.

For more information about negotiating the terms of a franchise agreement, please read our article Are Franchise Agreements Negotiable? Exploring Your Options.

For more information about unfair contract terms, please read our article Unfair Contract Terms.

While under the Franchising Code of Conduct you will be required to provide the franchisor with a statement which indicates whether you received independent legal advice in relation to the franchise agreement, you will only need to get a solicitor's certificate if the franchisor insists that you do so.

The Franchising Code of Conduct does not require you to give the franchisor a solicitor's certificate.